Credit Card Processing

The Essentials of Credit Card Processing for Small Business

A person holding up their credit card toward the storefront of a small business
Updated: Jan. 28, 2025
8 min read
Home » Credit Card Processing » The Essentials of Credit Card Processing for Small Business

For many small business owners, credit card processing feels like an intimidating labyrinth. However, it’s an essential part of modern commerce, enabling businesses to cater to customer expectations while unlocking significant growth potential.

In this article, we discuss the essentials of credit card processing, including its advantages and challenges, how eCommerce has its own expectations, what you should expect in terms of credit card processing fees, and much more. Learn everything you need to get started on improving your small business.

Why Small Businesses Should Accept Credit Card Payments

Credit card processing for small business merchants is virtually a necessity today. Moreover, it can improve your business performance and operations in many ways. Here’s how:

Bigger Customer Base

Customers are more likely to shop where they can pay with their preferred method. Therefore, accepting credit cards can help widen your potential market and attract shoppers to your store. Additionally, if you have an online storefront with a secure payment gateway, you’re more likely to attract online customers, too.

Accepting more payment options, whether Visa, Mastercard, or American Express, means you’re prepared to meet diverse customer needs.

Higher Sales & Revenue

A larger potential customer base implies a greater possibility of stronger sales and revenue. Customers who use credit cards tend to spend more than those paying cash[1]. The convenience of “buy now, pay later” often results in larger purchases, translating to higher revenue for your business.

Faster Transactions

Credit card transactions are quicker than cash payments, especially with technologies like insert or tap-to-pay. Faster checkouts improve customer satisfaction and free up time for you and your staff to focus on other priorities.

Smoother Cash Flow

Once your credit card payments are safely processed, the funds are deposited directly into your bank account, usually a couple of days after the transaction. This eliminates the delays of handling cash or waiting for checks to clear, helping you manage your cash flow efficiently.

Better Financial Management

The right credit card processor will provide you with hardware systems with built-in reporting tools, enabling you to track sales, monitor trends, and manage expenses more effectively. These insights are invaluable for making informed business decisions and accurate financial reports when it comes time to file your taxes.

For all of the above reasons and more, credit card processing can be a highly beneficial service for your business. With Payment Nerds, you can get the best credit card processing services tailored to your small business needs.

Downsides of Accepting Credit Cards

While credit card payments offer undeniable benefits, it’s important to understand the challenges as well. Here are a few drawbacks of accepting credit cards to keep in mind:

  • Scams & Fraud – Credit card fraud is a growing concern, especially for small businesses. Without robust security measures, your business could fall victim to fraudulent transactions. These are costly to resolve and can significantly affect your business’s reputation and trust if mishandled.
  • Chargebacks – Chargebacks occur when a customer disputes a transaction. They can result in lost revenue, additional fees, and further reputational damage. Clear policies for purchases and returns, as well as strong record-keeping, can help mitigate this risk.
  • Expensive Transaction Fees – Credit card processing fees can add up quickly. Each transaction includes a combination of interchange, assessment, processing fees, and potentially a flat monthly fee, all of which vary depending on the provider and card type.
  • Potential Hidden Fees – Some providers include hidden charges, such as early termination fees or batch processing fees. Carefully reviewing contracts and working with a transparent processor like Payment Nerds can ensure you avoid these costly surprises.

The Differences in Online Credit Card Processing for Small Business

Understanding the nuances of online credit card processing is critical for businesses operating solely online or in a more hybrid business model. While its backend processes are primarily the same for physical stores, eCommerce businesses have a few key differences to consider:

A half closed laptop on the desk of a small online business

eCommerce Websites

To enable online credit card processing in the first place, you need a stable and secure website. From there, you’ll need to work with a processor who can seamlessly integrate with your eCommerce platform and other software platforms your site may connect with to ensure that transactions are secure, fast, and user-friendly.

Payment Gateways

Payment gateways act as intermediaries between your business, the merchant and customer banks, and card networks. They help ensure transactions are authorized and processed securely. Payment Nerds provides payment gateways and other tailored solutions to ensure eCommerce businesses, both big and small, can securely process transactions.

Advanced Data Encryption

Modern credit card processing relies on encryption to protect crucial payment information and customer data. Because small businesses accounted for around 43% of all cybercrimes in 2023, data security and encryption are critical in credit card payment processing[2].

Processors that standardize the use of tokenization, SSL certificates, and PCI-DSS compliance are the best candidates for small businesses that need to safeguard transactions and maintain trust.

What Small Business Owners Should Know About Credit Card Processing Fees

Credit card processing costs are among the biggest pain points for small businesses. These costs usually come in the form of numerous fees, both from the credit card processor and the card networks they use to validate payments. Here’s what you need to know to know about processing fees for credit cards:

Pricing Models for Merchant Services

Different providers use varying pricing models. Understanding them can help you choose the most cost-effective option for your business. Below, we chart the four main pricing models you’ll find in the payment processing market:

Model Description
Flat Rate[3] A fixed percentage fee per transaction. This model is suitable for businesses with consistent sales volumes.
Tiered Pricing[3] A model in which fees are categorized into tiers based on the nature of a business’s transactions, including qualified, mid-qualified, and non-qualified. Each tier has varying fees. This model is often less transparent but is commonly used.
Interchange-Plus[3] This model offers transparency by separating interchange fees from processor margins, making it ideal for savvy small business owners.
Subscription This model includes a flat monthly fee plus an additional transaction fee. It is ideal for high-volume businesses and often includes additional features and services.

Types of Fees

There are numerous fees your business will be liable to receive, though which ones depend on the payment processors you choose to work with. Here are some standard fees to look out for:

  • Interchange Fees: Paid to the bank that issued the customer’s card[3].
  • Processing Fees: Cover the processor’s services.
  • Assessment Fee: Charged by card networks like Visa and Mastercard[3].
  • Batch Fees: Applied when you settle transactions using your payment process. The interval could be daily, weekly, or any other you choose[3].
  • Early Termination Fees: Penalize businesses for ending contracts prematurely[3].

How to Lower Credit Card Processing Fees

Credit card processing fees can be a significant expense for small businesses. However, you can minimize these costs and improve your profit margins with strategic planning and persistent effort.

Here’s how to keep your processing fees as low as possible while still maintaining a seamless payment experience for your customers.

Choose the Best Credit Card Processing for Small Business Merchants by Pricing Model

The pricing model you select can significantly impact your small business’s costs. Depending on your business type and transaction frequency, the right selection can be cost-effective and feasible.

For example, if your business performs consistently low-volume transactions, processors that use a flat-rate price model can be ideal. By aligning the pricing model with your transaction patterns, you can avoid unnecessary costs and enjoy payment processing benefits.

Minimize Credit Card Transactions

For small businesses with brick-and-mortar locations, card-present transactions will typically cost more to process than other payment methods, such as ACH transfers and debit card payments.

Therefore, you should reduce credit card transactions by investing in a modern point-of-sale and working with white-glove payment processors like Payment Nerds. These will ensure you accept alternative payment methods with lower transaction fees.

Reduce Chargebacks With Clear Policies & Customer Service

Chargebacks incur higher fees, and if they are frequent enough, they can lead to your business losing its eligibility to work with certain payment processors. To prevent chargebacks, offer clear and detailed product descriptions to avoid customer misunderstandings.

Also, ensure your business provides timely delivery and professional customer service so customer disputes can be resolved before they escalate. Develop solutions to customer purchase issues and keep records of all transactions so you can contest fraudulent chargeback claims.

Negotiate with Your Merchant Services & Payment Processing Provider

Many small business owners don’t realize that processing fees are often negotiable. After working with them long enough, processors may be willing to lower their rates for you, especially if you have a high transaction volume or a strong credit history.

Conclusion

Credit card processing doesn’t have to be overwhelming. By understanding the essentials and partnering with a trusted provider like Payment Nerds, you can focus on what matters most — growing your business.

Look for credit card payment processing for small business merchants. Get started with Payment Nerds today and learn how we offer a wide range of custom solutions, including payment gateways, advanced security, and quality credit card processing hardware.

Sources

  1. Forbes. “People Are Twice As Likely To Spend More Money When Using Card Than Cash In 2025.” https://www.forbes.com/advisor/business/software/people-twice-likely-spend-using-card-than-cash/. Accessed on January 10, 2025.
  2. Astra Security. “90+ Cyber Crime Statistics 2025: Cost, Industries & Trends.” https://www.getastra.com/blog/security-audit/cyber-crime-statistics/. Accessed on January 10, 2025.
  3. Forbes. “Best Credit Card Processing Companies for 2025.” https://www.forbes.com/advisor/l/best-credit-card-processing-companies/. Accessed on January 10, 2025.